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(Apr 26, 2010) China's State Council (Cabinet) issued a notice on April 17, 2010, authorizing banks to refuse mortgage loans to purchasers of third homes and to those unable to give proof of either residence in a city or of payment of one year's taxes there. According to the BNA DAILY REPORT FOR EXECUTIVES, the measures are the "toughest curbs yet" on China's growing real-estate sector and are aimed at shrinking a housing price bubble "after economic data showed record gains" nationwide in those prices in March. The average yearly rate of increase in housing prices in 70 major urban areas has reportedly been 11.7%. (Kathleen E. McLaughlin, China's Central Government Moves To Set Tough Curbs on Property Purchases, BNA DAILY REPORT FOR EXECUTIVES, Apr. 20, 2010, available at http://news.bna.com/drln/DRLNWB/split_display.adp?fedfid=16998701&vn
ame=dernotallissues&fn=16998701&jd=a0c2u7b7q2&split=0
.)

Under five main sections, the notice calls for: 1) every region and every department concerned to conscientiously fulfill their duty to stabilize housing prices and housing guarantees; 2) firm suppression of unreasonable housing demands; 3) an increase in the effective supply of housing; 4) acceleration of construction of housing projects for low-income urban residents; and 5) strengthening of market supervision. (State Council Notice on Firmly Restraining the Excessively Rapid Increase in Certain Cities' Housing Prices (State Council Doc. No. 10 (2010)) [in Chinese], The Central People's Government of the People's Republic of China website, Apr. 17, 2010, available at http://www.gov.cn/zwgk/2010-04/17/content_1584927.htm.)

The notice states, among other provisions, that a down payment of 30% is required by a family (the borrower, his or her spouse, and minor children) for a loan on a first property larger than 90 square meters, and a down payment of at least 50% is required on second homes at an interest rate on the loan no lower than 1.1 times the standard interest rate. For loans to purchase a third property or more, the notice states, the down payment rate and the loan interest rate should be substantially increased, with the actual rates to be determined by the commercial bank based on risk-management principles. The notice also indicates that tax policies to help curb speculation and over-investment in real estate are to be instituted. (McLaughlin, supra; State Council Notice, id.)

There is reportedly wide agreement among economists that China is in "a potentially dangerous property bubble" that might destabilize other areas of the economy. (McLaughlin, supra.) The steady rise in housing prices has created an overabundance of high-end real estate and a decline in middle- and low-income housing, the report states, and critics contend that the generation of more tax revenue for local governments, which own the land, from the development of high-end properties has "helped feed the bubble." (Id.)

Author: Wendy Zeldin More by this author
Topic: Property More on this topic
Jurisdiction: China More about this jurisdiction

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Last updated: 04/26/2010